USPS: Privatization vs. Bailouts

April 15, 2020

The economic crisis has highlighted reckless fiscal policies and a lack of foresight by our political leaders. Despite a decade of growth, the federal government ballooned its debt, which has now put the nation in a very precarious financial state. Meanwhile, some state governments saved little money in their rainy day funds and now the storm has arrived.

Similarly, Congress has long ignored calls to reform the U.S. Postal Service, and now the USPS faces a desperate financial crisis. In the past, the Trump administration proposed major USPS restructuring, as did the Cato Institute. But over the years, Congress has blocked even modest cost‐saving changes that the USPS has proposed.

proposed to Congress that it privatize the USPS, which would have given the company the flexibility it needs to weather the Covid‐19 crisis. The USPS is in a straitjacket unable to save itself during the crisis because Congress imposes restrictions on costs, pricing, labor unions, delivery, and other operational factors.

The USPS is a huge enterprise, with more than 600,000 employees and $70 billion in annual revenues. Revenues are supposed to cover costs, but the USPS has lost tens of billions of dollars over the past decade as mail volume has plunged. Even before the crisis, first‐class mail volume was down 47 percent since 2001.

The head of USPS, Megan Brennan, estimates that losses tied to Covid‐19 will be $13 billion this year. She says the crisis is having a “devastating effect on our business … The sudden drop in mail volumes, our most profitable revenue stream, is steep and may never fully recover.” The Washington Post reports, “Volume in the first week of March declined 30 percent, postal agency officials told lawmakers last week. At the end of June, the agency projects volume to be down 50 percent, and it could lose $23 billion over the next 18 months.”

The $2.2 trillion relief bill (CARES Act) gave a $10 billion loan to the USPS, but that does not solve any underlying problems. The USPS and some congressional leaders are pushing for more USPS bailout money in the next relief bill. But major USPS restructuring is needed, not more subsidies.

While it makes sense to help USPS buy protective gear for employees, the main policy focus should be cost‐cutting. Congress should allow the USPS to implement long‐needed reforms such as reducing delivery days, closing locations that have few customers, repealing collective bargaining, and other cost‐saving changes.

Such reforms would provide breathing room for the USPS and help it prepare for privatization. Facing falling mail volumes, European countries have privatized their postal systems, which has opened the door to innovation. Germany’s privatized Deutsche Post, for example, closed virtually all its stand‐alone branches, sold 29,000 buildings, and opened counters in retail businesses such as grocery stores. That is the type of cost‐saving reform the U.S. system needs.

Some members of Congress want to write‐off USPS debts in a new relief bill and push the costs onto taxpayers. That would be reasonable if tied to restructuring that cut long‐run costs and allowed the USPS to innovate. Without privatization, the postal system’s red ink will continue to flow like an endless river.

Even before the crisis, postal and delivery markets were changing rapidly. The crisis is spurring further shifts in business and consumer behaviors. Congress should privatize the USPS to give it the flexibility it needs to deal with all the new challenges.

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